INTRODUCTION TO SIMULATION

Welcome to the exciting world of simulation! Unlike most education and training exercises, a
simulation provides an opportunity for the continuous practice of managing the human resource
functions of an organization. The player has the unique opportunity to make decisions, see how the
decisions work out, and then try again! Thus, players get a "hands on" experience with manipulating
key human resource variables in a dynamic setting. Simulation techniques have been used for some
time in attempting to create business models that can aid in explaining the "real world." In this
simulation we have attempted to combine the human resource elements found in the real world along
with the business environment found in this type of situation. This model will take the decisions each
team makes and simulate how the labor marketplace and the organization will react. The relative
"appropriateness" of each team's decisions will be reported on the team's status report that will be
furnished each decision quarter (see page 14).
You will be managing a medium size organization that will be competing with other teams (up to
20). The simulation is programmed to simulate either a profit or non-profit organization, and
manufacturing or service. Your instructor will inform you of the industry designation in which you
will be operating (A, B, C, etc.). One to five people will be on a team managing an organization in
this simulation. The organizing of your team will be left up to each team. Teams are expected to
establish objectives, plan their strategy, and then make the required decisions dictated by these plans.
Decisions are submitted to the instructor periodically. These decisions are input into the computer,
which produces a report for each team concerning the firm's results. This is done for several
iterations. It is strongly recommended that teams approach the simulation as a real world
environment of competing against other firms in the labor market and not attempt to play "against"
the computer; the computer program is controlled by the decisions that all the teams make.
In the real world, managers must make decisions without perfect information, under conditions of

'"-,,

uncertainty, and under time constraints. This simulation is no different! You will need to get as much
information as possible through the survey research reports provided, keep good records in order to
study the interactions between the decision variables, and then make your decisions for the next
round. It is recommended that you do not use the "stab in the dark" method of making decisions but
rather plan to hold certain variables constant while manipulating others. This will allow you to begin
to determine which elements are more effective in obtaining desired results. Do NOT rely on
information gathered from others who have competed in the simulation in the past as the
administrator can (and usually does) change the environment of the simulation for each class! All
teams will make a few mistakes throughout the simulation so don't allow a few set backs to affect
your play--mistakes happen in the real world too! Keep your spirits up and good luck!

OVERALL SCENARIO
You are to assume the position of a newly appointed Human Resource director of an organization of
approximately 660 employees. The organization has grown rapidly, and the hwnan resource department
(and functions) has not kept pace with this growth. The Chief Executive Officer (CEO) has instructed you
to get the human resource department organized and build a strong HR function. The organization may be
in production or services, profit or non-profit. The instructor or your class may want to decide which type.
Currently there is no union involved, but the industry is slowly becoming unionized. At the lower levels
there are both semi-skilled and skilled workers (about 500). The firm has no policy on promotions and
has hired into the upper levels of management from the outside as well as promoted from within.
Responsibility for training now resides primarily with department heads and is strictly on-the-job type
training. The economic conditions in your region are good and unemployment rates are average.

ESTABLISHING GOALS AND STRATEGIES

Setting and pursuing organization goals are an integral part of THE HUMAN RESOURCES
SIMULATION. Your instructor may require that you formalize these goals. There are instructions and
forms for this purpose in the section entitled "Goals and Strategies." Although you have wide latitude in
this area, the C.E.O. has instructed you to "get this organization moving." Ultimately you will be judged
by the success or failure of your organization to achieve the goals you select, whether the goals are
formalized or not.
KEY SIMULATION OBJECTIVES
Your team's performance will be judged against the goals you have (formally or informally) set in
terms of your ability to manage a budget, unit labor cost, quality, morale, grievances, absenteeism,
accident rate, and turnover. As in the real world, you do not have enough budget to do everything.
Your team must make choices as to what is most important to you and concentrate your budget on
those factors. You will, in a sense, be competing with all other teams on the items mentioned above.
However, in terms of direct competition, you are only competing with other firms in the local labor
market for new employees. The other firms (teams) in your class will comprise the local labor area.
DECISIONS TO BE MADE
Wages
The wage rates for the organization are somewhat below the average for the local community. The
following table illustrates the wage rates (including benefits) currently in effect (on a quarterly
basis):

Job Level
5

4
3
2
1

Table 1 - Job Titles and Wage Rates

Current Wages this Co.
Typical Job Titles
Local Area Wages
$19,000
$18,000
Key managers; engineers
14,000
16,000
Staff specialists; dept heads
12,000
14,000
Supervisors; technicians
11,400
10,000
Skilled positions
9,000
8,000
Semi-skilled positions

Decisions concerning the level of wages and benefits are not traditionally the sole responsibility of a
Human Resource director. However, the Chief Executive Officer has given you the responsibility for
making these decisions as long as they are within your budget. Be careful in calculating the total
cost of a wage increase as an error could deplete your entire annual budget.
Note the total cost of a small wage increase in Table 2 below. Wages for any job level may be
increased at any quarterly decision period by inserting the increase on the decision input form. The
total quarterly cost of any increase should be calculated and subtracted from the available budget that
quarter. It may be assumed that the ongoing cost of wage increases will be built into the total cost of
wages in subsequent quarters and the company will pick up the cost. Thus, only the first quarter a
wage increase is paid should it be charged against your quarterly budget

Wage Rate Worksheet

Wage rate errors can be very costly and damaging to your organization's effectiveness. A wage rate
worksheet is included in the forms section of the manual. The example below indicates how the new
additional cost is calculated. The values are from the previous quarter printout on page 14.
Table 2 - Wage Rate Worksheet

Job
Level
5
4
3
2
1

Local
Average
19,000
16,000
14,000
11,400
9,000

Industry
Average
20,200
18,390
16,180
12,050
. 10,100

This Co.
Old
Rate
18,000
14,000
12,000
10,000
8,000

This Co.
New
Rate
18,300
14,250
12,200
10,150
8,100

Increase
300
250
200
150
100

Number of
Employees
@this Level Total Cost
20
6,000
25
6,250
50
10,000
60
9,000
500
50,000

TOTAL COST

$81,250

Work Force Demographics

.'-..-/

One of the problems facing the Human Resource director is the lack of females and minorities at all
job levels. Due to rapid growth of the organization, little effort was made to have a representative
work force. Although there is no litigation concerning this unbalanced work force at the present time,
the new Human Resource director has been directed by the Chief Executive Officer (CEO) of the
organization to begin integrating the work force. A percentage of total hires can be established in
each quarter for hiring minorities and females . The percentage represents a policy that should be
considered something between an optimum and a minimum percentage. There is no guarantee that
the exact number of females and minorities can be hired as other firms are also attempting to correct
imbalances. Males or females can do all the jobs in the organization. The following table below gives
the current workforce status. The "Local Community Labor Force Available", as shown below,
should be the percentages of females and minorities the firm should have as a goal over the long
term.

Table 3 - Community Workforce Demographics

Job
Level
5
4
3
2
1

Total
Total
Total
Positions
Females
Minorities
in Your Co in Your Co in Your Co
20
0(0%)
0(0%)
25
1 ( 4%)
O( 0%)
10 (20%)
50
5 (10%)
60
5 ( 8%)
6 (10%)
500
60 (12%)
40 ( 8%)

* Local Community *
* Labor Force Available *
Females
25%
20%
30%
35%
40%

Minorities
20%
25%
25%
25%
30%

Affirmative Action Worksheets begin on page 73. It will allow you to monitor your progress each
quarter. The values are from the quarter 0 printout are from page 14.

Table 4 - Affirmative Action Analysis

4
5
AVAILABILITY
Female Minority
%
%

Column> I
2
3
CURRENTENWLOYMENT
Number
Minority
of
Female
Employees
%
%
Level

5
4
3
2
1

20
25
50
60
500

Values from page 14

0%
0%
4
0
20
10
20
10
12
8

Values from
25%
20
30
35
40

page 4
20%
25
25
25
30

6
7
UNDERUTILIZATION
Female
Minority
%
%
(col 4/col 2} (col 5/col 3}
100%
16
10

15
28

100%
100%
13%
15%
22%

Replacing Employees

There are two methods of replacing employees. The first is to hire qualified people on the open
market. The cost of this method is shown in Table 5. The hiring costs for levels 2 to 5 include fees of
employment agencies, costs associated with recruiting, interviewing, testing, and travel. The cost for
level 1 employees include on-the-job training and lower productivity during the first few days or
weeks of employment. You may note that the turnover of level 1 employees is somewhat high. One
of the special programs available to you at a later time is a more formal hiring process that would
include aptitude tests, health screening, and drug testing of new employees. One of the budget
decisions, additional training, would help decrease the turnover at all levels.
Promoting from Within
The second method of replacing employees is to promote from within. Although the latter has been a
primary method of filling management positions in the past, the lack of formal training has resulted
in less-than-desired performance by people promoted in this manner. If you want to assure that your
promote-from-within policy is successful, you will need to budget the suggested amounts for training
those who are promoted (see Table 1 column 4). Personnel must be hired and/or promoted to fill all
vacancies. Failure to hire and promote sufficient personnel at all levels results in overtime in order to
meet production requirements or a higher-than-usual turnover rate at the non-production (managerial)
levels. If you promote from a level, you will need to hire an equal number of employees in addition
to the "number of expected vacancies" shown on the status report. An example is shown below.
Levell expected vacancies (50) plus the number of promotions from Levell to Level 2 (1)
= Total Hires for Levell = 50 + 1 = 51
Hiring Costs
Hiring costs are calculated from Table 5 and should be considered in your budget. The program will
automatically charge these costs against your budget; do not place hiring costs anywhere on the
decision form.

Training Costs for Promotions

These are costs incurred when internally promoting an employee. The recommended level of the
training budget is shown in Table 5 below. However, training is only recommended, not required.
The training costs should be entered on the Decision Form on line 1 "1. Training Budget." The
amount of the training budget can vary between $0 (no training for promotions at all) and $80,000
(training all promoted employees. It is recommended to train employees sufficiently. Training those
who are promoted increases their probability of success and reduces turnover. The Table below
shows the various costs and expected vacancies for your first decision:
Table 5
HIRING FROM OUTSIDE VS. PROMOTING/TRAINING WITHIN
1

Level
5
4
3
2
1

2
Number of Expected
Vacancies in Quarter 1
1
2
5
6
50

3
Cost to Hire on the
Open Market Automatically Charged
15,000
12",000
10,000
7,000
2,000

4
Suggested Training
Budget for Internal
Promotions (each)
3,000
2,000
2,000
1,000
200

Hiring on the open market should give the firm a well-trained person and further training may not be
necessary. However, it is felt that supervisors and managers will be better prepared and have a higher
chance of success by the training program to assume managerial positions in the organization. On the
other hand, "new blood" is also needed from hires outside the organization to bring new ideas and
methods into the organization.
Current Fringe Benefits
The organization has very meager fringe benefits; these benefits are currently 20% of wages. An
analysis of your current benefits and costs (as a percentage of payrolls) is shown below.
Social security tax
Unemployment insurance
Health Care plan costs
(Low-benefit, high-deductible - $500)
Workmen's Compensation Benefits
(Injuries on-the-job)
VacationIHoliday Policy
Sickness Pool
Total

7.65%
1.0%
4.35%
1.0%
5.0%
1.0%
20.0% of payroll cost

The current health care plan (shown above) covers off-the-job injuries and illnesses. It is known as a
"Catastrophic" plan because it is designed to protect against serious health problems that would be
catastrophic to an employee's finances. The employee must pay the fIrst $500 of any claim. Employees do
not pay any part of the fringes listed above. Other benefits and their associated costs are listed in Table
6. All figures are a percentage of wages and would represent an increase to fringe benefits by the
percentage shown. This table allows teams to choose specific benefits as most of the percentages
are unique numbers and the computer program can detect the desired program.
5

Table 6
FRINGE BENEFIT OPTIONS

Dental Care and Legal Services

Term Life Insurance and Eye Care
Employee-Funded 401K (Pension)
Tuition Reimbursement
Add I VacationlPersonallSick day
Add another VacationlPersonal/Sick day
Add another VacationlPersonallSick day
Add another VacationlPersonallSick day
Add another VacationlPersonal/Sick day

Cost
%
.1
.2

.4
.8
1.6
1.61
1.62
1.63
1.64

Prescription Drug Plan

Employer Sponsored 40lK Plan-Starter
Employer Sponsored 40lK Plan-Moderate
Employer Sponsored 401K Plan-High
Incentive (merit pay) Plan
Health Insurance with lower deductibles
Health Insurance - Average Industry plan
Cafeteria Plan: Employees choose benefits

Cost
%
3.2
3.4
4.15
6.8
3.26
3.27
6.81
9.66

(1) VacationlPersonal days are currently 10 days after one year for Levell and 2 employees and 3 weeks
for Levels 3-5 and 6 paid holidays for everyone. Each of the items "Add another VacationlPersonallSick
day" will add one more and allow sick days to be taken from the total allowed. For example, if all 4 days
were added, a beginning employee would have 14 days to use as vacation, personal, or sick days (10 now
+ 4 new). Adding one of these days could also be assumed to be another paid holiday.

Fringe Benefit Example

If you wanted to add dental and legal services (Additional Cost=.l% of wages), you would enter
20.1 % for Fringe Benefits on the Decision Form (20%+.1 %). If you wanted to add tuition and
prescription drug plan, you would enter 24.0 for Fringe Benefits on the Decision Form (20 + 3.2 +.8).
In order to calculate the cost, you would need to mUltiply the INCREASE by the total base payroll
plus any wage increases you are giving this quarter. The work sheet in the Forms section of this
manual will aid in this calculation. For example, the 4% example given above would cost $236,400
(total wages $5,910,000 x .04). Note the relatively high cost of adding fringes . Do not miscalculate
and expend your entire budget! Remember that you are to enter your fringe benefit rate each quarter,
e.g. 21 % or whatever. Any increase is only charged to your budget the first quarter you institute it.
Thereafter, the extra cost is absorbed into the production department's operating budget.
Do not revert to the 20% base fringes after a fringe addition or that benefit will be dropped, with an
accompanying drop in morale. In the case above, continue enter 24% until you want to grant another
fringe benefit. You will be charged only for the increase made that quarter, and only for one quarter.

Budget for Other Activities

Each quarter you can allocate budget dollars to a variety of programs that may positively impact your
.f irm's operations. Program costs vary and costs differ from each program. If a program is canceled,
any benefits accruing to that point are lost and there could be a negative result of canceling the
program. For example, if the employee participation program were canceled, you may have a
decrease in morale and an increase in turnover. Once a program is instituted, it must be re-entered
on the decision form each succeeding quarter ifyou want to continue it; failure to do so will cancel
the program. The following is a recap of these items. They are explained in detail below.
1.
2.
3.
4.

Training Budget for Promotions (0 - $80,000)

Training Budget for Management and Employees (0 - $80,000)
Safety & Accident Prevention Program (0-$80,000)
Establish and Maintain Quality Program (0-$80,000)

There is no way to know when the "point of diminishing return" is reached except by trial and error.
6

The definition of this point (amount budgeted) is when each extra dollar budgeted results in less than
the dollar's impact.

Training Budget for Promotions

Failure to train a person who has been promoted will result in a higher than normal turnover rate in
that Level, reduced productivity, and decreased morale when the employee fails at hislher new job
and must be placed back in their old position. An example of calculating the training budget is shown
below.
1 person promoted from Level 3 to 4
2 persons promoted from Level 2 to 3
1 person promoted from Level 1 to 2
Total Training for Promotions
2 day supervisory training
2 day manager training
2 day training for secretaries, staff
Total Training Budget this quarter

$3,000
$4,000
$1,000
$8,000
$1,000
$1,000
$1,000
$11,000

Training for Management and Employees

Training programs prepare an employee for new job responsibilities, can provide general managerial
and career development training, and can update employees' technical skills. Currently the
organization does not have any training programs. Examples of the cost of various programs are
shown below. A normal class size for training would be 20 employees; the cost per class is shown
below. The program does not allow for you to choose which program is given. It assumes the more
you budget, the more training is conducted. Some examples are given below.
One half day program for production employees in technical skills
One day program for Supervisors on management skills
One day program for managers on management skills
One half day program on such topics as time management,
stress management, managing change, introduction
to computers, managing the difficult worker, etc.

$1,000
$2,000
$2,000

$1 ,000

Safety
One of the problems facing the Human Resource Director is an accident rate that is higher than it
should be. It is felt the causes of this are a higher than average turnover rate (i.e., there are always
new, untrained employees coming into the organization), less than satisfactory morale level, and a
lack of any type of accident prevention or safety program. The accident rate for the organization (as
measured by employee-days lost per 1 million employee-hours) is 494; the industry average accident
rate is 494. However, both of these rates are above local accident rates and those of many other
industries. It is estimated that the cost for a safety program could range from $1,000 to $20,000, or
more per quarter. As Human Resource Director, you have the option of implementing a program and
the budget for such a program. In order to have a full time Safety Director, you would need to budget
at least $12,000 per quarter.

Quality Program
The quality of the goods produced (or services rendered) is listed on the report each quarter. An
7

index has been established which has a range of from 100 (high quality) down to 0 (extremely low
quality). Currently, the organization has a quality index of 50. This represents "average" quality. A
minimal program can be established with a budget of $4,000. A more formal quality control program
could be established with a budget from $5,000-$40,000 or more. Although quality control is not
normally the responsibility of a Human Resources Director, it is incorporated in the simulation
because it is closely related to personnel areas such as grievances, training, and turnover.
Currently, quality is checked at the end of the process (post process control); a program to train
supervisors to conduct quality checks during the process (concurrent control) could be established for
$5,000 per quarter. A budget of $13,000 per quarter would need to be established in order to have a
full time Quality Control Manager. A Total Quality Management (TQM) program could be
established for $25,000 per quarter. All of the budget amounts shown above are additive; that is a full
time manager and concurrent controls would cost $25,000. If you choose either program that requires
a full-time manager, you do not need to add this person to your "hires" column on the decision form.
To summarize, you may budget any amount to this category from $1,000 to $80,000 and the more
you budget, the greater the emphasis placed on the quality aspects of your organization. There is a
point of diminishing return in this category as with any other expenditure in the simulation.

OTHER PROGRAMS
There are six programs with will impact the human resources function. Explanations of each are
listed below. They are:
1.
2.
3.
4.
5.
6.

Employee Participation Program ($12,000)

Grievance Procedure ($6,000)
Orientation Program ($3,000)
H R Information System ($11,000)
Performance Appraisal System ($5,000)
Affirmative Action Program ($7,000)

Employee Participation Program

Contemporary human resource practices include various programs that attempt to give workers more
self-direction and control over their work and working conditions. Programs range from voluntary
problem solving groups to formal quality circle programs. The budget includes funds for establishing
and supervising these new programs as well as paying the time of employees when they are not doing
their regular job and are attending meetings. The cost of this program is $12,000 per quarter. You
should not start the program if you do not plan to continue it, or heavy morale problems will result.

Grievances
The organization does not have a formal grievance procedure. Department heads currently handles
grievances formally. The department heads estimate there were 31 grievances last quarter. It is felt
there are probably many more than this number, but employees either quit or continue working with
lower morale instead of pursuing a grievance. The high turnover rate and very average morale index
would certainly add credence to this theory. The cost of establishing a formal grievance procedure is
$6,000 each quarter. The program should not be discontinued once it is initiated.

Orientation Program
Currently, the organization does not have an orientation program for new employees. This fact could
possibly contribute to the higher than average accident rate and to the turnover rate. The cost of a
"no-frills" orientation program would be $3,000 per quarter.
8

Human Resource Information System

Human Resource records and the record keeping system have not kept up with the rapid growth of
the organization. Currently, the payroll records and payroll check writing are the only items being
done on the computer. The Human Resource Director has received a bid for $11,000 per quarter to
install and maintain personnel records on a computer. The vendor claims the benefits of this system
would be improved decision-making in all areas of the Human Resource function -- benefits,
selection, staffing, training and development, performance appraisal, and job analysis. The program
should not be discontinued once it is initiated.
Performance Appraisal Program

'-"- '

The firm does not currently have a formal performance appraisal system. Some employees complain
that the supervisors and managers give raises and perks to those they like and not necessarily those
who are most productive. A formal system could be established and maintained for $5,000 per
quarter. Decreased turnover, increased morale and productivity should result from this system. The
program should not be discontinued once it is initiated.
Affirmative Action Program
The firm currently has less female and minority workers than the local working population. Hiring
has been generally done on a "walk in" basis and there is no formal plan to increase the number of
women and minorities in the firm. This program would assign a high level manager to assume the
additional duties as the firm's Affirmative Action Officer, develop goals, and develop specific
programs to achieve these goals. The cost of this program would be $7,000 per quarter and should
not be discontinued once it is initiated.

PRODUCTION LEVELS, PRODUCTIVITY, AND OVERTIME

Productivity in the last quarter was 200 units per employee. Although industry-wide figures are not
available, it is felt that improvements could be made in productivity. Although productivity is not
normally the responsibility of the Human Resources manager, it is included in the simulation because
of its close relationship to key human resource areas such as turnover, quality, grievances, etc. If
productivity increases, there will be fewer Levelland 2 workers to employ; therefore, hiring costs
and all costs associated with wages will be lower, e.g., fringe benefits. Productivity can suddenly
drop if any changes are made in the human resource area due to a drop in morale.
Each quarter the production required for the next quarter will be printed on your quarterly report. In
addition, the number of Level 1 employees required to meet the production quota is listed under
"Other Information." This number is calculated (automatically by the computer) by dividing the
required production by the productivity per employee, e.g., 100,000 units required) 200 Productivity
per level 1 employee = 500 employees required.
Overtime
If you do not have enough employees to meet the production quota, the units required to meet sales
will be produced by overtime work and the firm will be charged $45 per overtime unit produced.
This will increase the unit labor cost for the quarter. The HR department budget will be charged $2
per overtime unit for its additional work up to a maximum charge of $5,000 for the quarter. If the
organization continues to have overtime, the maximum charge to the HR department will be
9

increased.
Unit Labor Cost Calculation
The quarterly report will indicate the current production cost per unit. It is calculated as follows:
Labor Cost (per unit) = Total payroll (excluding fringes) plus overtime costs ($45 per
overtime unit) divided by units produced
From Quarter 0 report: $5,910,000 / 100,000 = $59.10 production labor cost per unit
Special Programs
Throughout the simulation, as a result of outside contacts or the operating policies of your
organization, your instructor may present you with a variety of additional opportunities to make onetime expenditures for programs, speakers, or other special projects. The availability of these
opportunities will be reported on your quarterly status report and you will indicate your desire to
implement a special program or project through the "Special Programs" category on the decision
form. Expenditures for special projects and programs must be made within the budgetary limitations
of the quarter unless you are willing to use funds from the next quarter' s budget to make the
expenditure. In addition, your CEO has limited your special expenditures to a single project or
program in any given quarter. If you select an option, you may select only one in a quarter and the
cost of it must be entered on the Decision Form under "Special Programs." If your team neglects to
enter the cost of a program/project, it is not available in a future quarter.
Survey Research
Each decision quarter you will have the opportunity to purchase industry research that will aid you in
the decision making process. The surveys that are available are shown below. To order desired
surveys, enter the Decision Form Entry as shown below. You may order any combination, e.g., 1,2,
3. Enter a zero if you do not want any surveys.
SURVEY RESEARCH STUDIES

1. Industry Average Quality, Morale, Grievances and Absenteeism

2. Industry Average and Local Comparable Wage Rates
Average Industry Training, Safety and Quality Budgets;
Number of organizations with Employee Participation Programs
Both Studies

10

Cost
$1,000

$2,000
$3,000

Decision
Form Entry
1

Incidents
For each decision quarter there is a special situation that requires your analysis and decision. Your
decision is entered on the "Incident Decision" line on the decision form. If there is any cost, it will
automatically be charged to "Incident Expenses." The decision you make could impact, immediately
or at some future time, your operating results or costs. The incidents are contained in the INCIDENT
section of this manual. The incident to use the next quarter is printed on the Quarterly report. For
Quarter #1, the incident to use is Incident A "Job Analysis."
Turnover - Morale
The current turnover rate of this organization is 9.8% that is rather high. Overall morale of the work
force could be a contributing factor. It has been estimated by department heads that morale is
currently 50 on a scale of 0 to I 00; a rating of 50 indicates morale is lackluster and the many of
employees are coming to work with an indifferent attitude. Some managers in the organization have
mentioned one or all of the following as contributing factors: the lack of a formal performance
appraisal program, lower than local equivalent wage rates, lower than local fringe benefits, the lack
of a grievance procedure, and a lack of training.
Annual and Quarterly Budget
Quarterly decisions must be made within certain budgetary constraints. Each quarter your annual
budget is given along with the remaining budget for the year. For the first year your budget is
$1,400,000. Twenty-five percent of this, $350,000, should be your target for your first quarter. This
includes all monies available for wage increases, hiring and training costs, and all other activities.
For the next two quarters you may ignore any needed adjustment to wages for inflation; this
information will be provided later if inflation becomes a factor.
You should carefully analyze your budget to insure you do not overspend. You could get into a
budget situation in which you had to drop critical programs in the last quarter of the year if you do
not have enough funds in the budget. If you do not allocate your entire annual budget, it is given back
to the fmancial office. If your expenditures exceed your budget, the overage is subtracted from the
next year's budget. You may not carry any unused budget over to the next year nor "dip" into next
year's budget. Therefore, in the 4th, 8th, and 12th quarters you should attempt to budget as close as
possible to the quarterly budget! (This is standard business procedure!) Going over the budget at the
end of the year (every 4th quarter) is a serious managerial deficiency and will be dealt with severely
by upper management.
BUDGET LIMITATIONS
It should be evident that the simulation player does not have an unlimited budget and cannot meet all
needs immediately. A plan should be made and priorities should be established. Decisions should be
made according to this plan and the results noted each quarter. Adjustments may need to be made as
required. The budget for year 1 and the estimated budget for year 2 are shown below. You will be
notified on the quarterly report if the c.E.O. modifies these projections. As in the "real world,"
budgets are not guaranteed and the financial officer may need to change your budget at any time. If
so, you will be notified via the quarterly report.

11

Table 7 - FUTURE BUDGET PROJECTIONS

Year and Quarter Numbers Annual Budget
Avg. Quarterly Budget
Year 1 - Quarters 1-4
Year 2 - Quarters 5-8
Year 3 - Quarters 9-12

I
I $1,400,000

I
I

$1,600,000 estimate

I To be announced

$350,000
$400;000

SAMPLE DECISION FORM

An example of a completed Decision Form is shown on page 16. Note that the verification total is the
sum of your entries, not the cost of all entries. You may mix dollars, percentage, and units; it is for
computer input verification only. If your instructor is entering your decisions on the computer it is
helpful if you place a zero on any entry that is not used. This sample decision form has the decisions
that resulted in the Quarter 0 report on page 14.
SAMPLE REPORT - YOUR SIMULATION STARTING POINT
A report for the previous quarter (Quarter 0) is shown on page 14. This is the starting position for
all firms. You are beginning in the first quarter of the new budget year (Quarter 1, Year 1).
ANNOTATION FOR QUARTER 0 REPORT ON PAGE 14
At first glance the report may seem overwhelming. It was designed to fit all on one page to save
paper and help the environment. It is organized into six sections.
Human Resource Status - how many employees you have and how many how many you need.
Level 2 employees will be used as an example. The column "Available this quarter" is calculated as
follows:
Beginning number of employees (+60) + Hired (4) - Promoted to the next level (0) + Promoted from
a lower level (1) - Resignations (5) = Available this quarter (60).
NOTE that the "Internal Promotions" (2 employees) is NOT on the same line but rather is shown on
the Level 3 line. In other words, you have gained one employee that was promoted/rom Levell and
lost 2 employees that were promoted to Level 3. The column "Req'd this Quarter" is calculated by the
computer according to the number of employees needed for the given level of production.
Critical information you need for Quarter 1 is "Estimated Vacancies next quarter" (next to last
column). This is given so you will know how many employees to hire next quarter.
Production Information - A key items in this section are "Production next quarter" and
"Productivity next quarter." The number of level 1 employees needed next quarter is calculated by
dividing production next quarter (100,000) by productivity (200 units per employee) = 500. As you
might have noticed, the higher the productivity per employee, the fewer employees needed.
Other Information - informs you about several important measures of your firm's condition, along
with industry averages. Industry averages in the simulation refer to all the teams that are competing
in your class. Any mention of "Local" averages (e.g. wages) refers to the local community labor
market where your organization is located.

12

Financial Information - summarizes your expenditures for the quarter and indicates whether you
were over or under budget. The budget for the next quarter and the balance for the year are also
given. A budget surplus or deficit is carried over to the next quarter but is not carried forward to the
next year. Going over the budget at the end of the year (every 4th quarter) is a serious managerial
deficiency and will be dealt with severely by upper management.
Survey Research Studies - by purchasing these industry surveys you can determine how you
measure up to other firms in the industry. The wages shown exclude the cost of fringe benefits.
Industry News Messages - Includes the production forecast for the next 4 quarters for planning
whether to pay overtime for a short "blip" in demand or hire additional permanent employees. In
addition, other messages of interest to all teams are printed.
News messages to Your Firm - This includes the Incident to be used for next quarter and your total
payroll cost (this latter figure is used when calculating additional fringe benefits cost). Also a specific
message to your team concerning your incident and/or feedback about decisions will be included.
Unit Labor is also shown. It is calculated by dividing the total payroll plus overtime cost ($45 per
overtime unit) by units produced. An example from quarter 0 report: $5,910,000/100,000 = $59.10
per unit. Higher wages, fringe benefits, and overtime will increase this cost, and higher productivity
(per employee) will decrease this cost.

13

This is the PREVIOUS QUARTER'S REPORT for Your Firm (Your starting position):
(This is a replica of the report you will receive after each decision)
Quarter 0

Begin
Num
Level ber
5
20
4
25
50
3
60
2
500
1

HUMAN RESOURCE STATUS

Num
ber
Hired
1
1
4
7
51

Tbis Ouarter
Available
Internal
Promo Resigna This
Quarter
tions
tions
20
0
1
25
1
2
2
50
5
1
6
60
50
500

Industry J

Co. X

Next Ouarter
Req'd
Estimated Total
This Total
Total Vacan- Employees
Qtr Females Minorities cies
Reguired
20
1
20
0
0
25
0
1
25
1
50
10
5
50
5
6
60
60
12
6
500
40
50
500
60

Note: The "Number Hired" and "Internal Promotions" columns above show how promotions from
a lower level require additional hires at the lower level to replace tbe promotions (see levels 1 and
2). The number to hire next quarter are shown under "Estimated Vacancies" Next Quarter, e.g., 1,
1,5,6,50.
*** PRODUCTION INFORMATION ***
100,000
Quality Index (lOO=High O=Low)
50
Units Required this quarter
Production Required Next Quarter (units) 100,000
Units Produced @ Reg Time 100,000
200
o
.Productivity Next Quarter
Units Produced @ Overtime

*** OTHER INFORMATION ***

Accident Rate (days lost per
1 Million hours) This Co.
Industry Average
Fringe Benefits(% of Wages)
Industry Average

494
494
20.0
20.0

Turnover this Co. %

Industry Average
Morale (lOO=hi O=low)
Grievances
Absenteeism (days)

9.8
9.0
50
31
498

*** FINANCIAL INFORMATION ***

(Information given below is an example. Your actual costs will be determined by your decisions.)
$
0
Cost of Added Wages this qtr
Hiring Cost this Quarter
219,000
Overtime cost to HR Dept.
o
Promotions Training
2,000
2,000
Training for ManagementlEmployees
10,000
Safety $5,000 and Quality budgets $5,000
Cost ofIncreased Benefits (this qtr only)
(Decision Entry =20.0 + 1.6 =21.6)
1.6% new x $5,910,000 =
94,560
Employee Part + Grievance + Orient Costs
6,000
11,000
HRIS + Perf App + Aff Action Costs
Incident Expense
5,000
Special Programs, Fines, and Other Expenses
o
3,000
Research Survey Cost
Total Cost this Quarter
$ 352,560
Total Budget this year
$1,400,000
Budget Remaining this year
$1,047,440
Note: The fringe benefit increase shown above is an example. Your firm is starting with 20%.

14

*** SURVEY RESEARCH STUDIES ***

Your Firm's Wages excluding Fringes (LevelS-I):
18000 1400012000 10000 8000
Industry Avg Wage excluding Fringes (Level 5-1):
18000 14000 12000 10000 8000
Local Comparable Wage excluding Fringes:
19000 16000 14000 11400 9000
Avg Management Training $ 4,000
Avg Safety Budget
$5,000
Avg Quality Budget
$ 5,000
Number of Co's with Emp Part Program: 0
Avg Quality Index, Morale, Grievances, and Absenteeism:
50, 50, 31, 498

*** Survey Studies, News Messages to Your Firm and Incident x Response ***
Use Incident A in Quarter 1. Total Payroll this quarter (excluding fringes) $5,910,000
Unit Labor Cost $59.10
(Your Incident results are also printed here)
*** INDUSTRY NEWS MESSAGES ***
Production Forecast Next 4 Quarters: 100,000 105,000 110,000 112,000

EXPEDITED QUARTER 1 DECISIONS

The following instructions are given if you have only a limited amount of time to make the first
quarter decisions and you want to expedite the decision process. Place a Decision Form (from the
back of the manual) next to the Quarter 0 Starting Point Report (page 14). Enter the numbers from
"Estimated Vacancies Next Qtr" (top right column) on the Decision form "Hire from Outside"
column (0,0,4,5,50). This will replace all workers who are leaving your organization with outside
hires; there will be no internal promotions - you can do that next quarter.
The hiring cost will total $168,000. You will have $46,500 ($350,000 - $168,000) to spend on the
remaining items (# 1-# 11) on the decision form. However, if you have not had time as a team to set
goals you should under spend your budget on items #1-11 and wait until next quarter to implement
your strategy. You will be delaying wage increases and a fringe benefit increase until you have time
next quarter to carefully calculate the costs. An expedited decision is not the preferred method of
starting the simulation but at least it will get things going.

The most common error made on the decision form is the team's failure to
hire the correct number of employees to replace resignations. Another
common error is failure to replace the employees who were promoted.

15

ANNOTATED EXAMPLE OF COMPLETED DECISION FORM - Quarter 0 data

Industry__ Quarter .JL Company # __

HUMAN RESOURCES DECISION FORM

Level
5 -->
4
3 -->
2 -->
1 -->

Promote
Wage Increase FYI
Hire from
from
per person
Cost to
Outside (a) Within
this Quarter
Hire
1
0
15,000
$ 0
1
0
$ 0
12,000
5
0
$ 0
10,000
6
0
7,000 (Includes I promotion to Level 3)
$ 0
50 <Includes I promotion to Level 2)
2,000
$ 0
VERIFICATION TOTAL 1-->

6 3

(Add all 14 items above)

1.

2.
3.
4.
5.
6.
7.
8.

9.
10.
11.

12.
13.
14.
15.
16.

Training Budget for Promotions

(0-80,000)
Training Budget for Managers/Employees (0-80,000)
Safety & Accident Prevention Program (0-$80,000)
Establish and Maintain Quality Program (0-$80,000)
Target % of Females to Hire (% of Total Hired)
Target % of ~norities to Hire (% of Total Hired)
Fringe Benefits % (Examples: 20.0, 21.6, 23.2)
Employee Participation Program ($12,000) O=No l=Yes
Grievance Procedure ($6,000)
O=No l=Yes
Orientation Program ($3,000)
O=No l=Yes
HR Information System ($11,000)
O=No l=Yes
Performance Appraisal System ($5,000)
O=No l=Yes
Affirmative Action Program ($7,000)
O=No l=Yes
Special Programs (Enter only if instructed)
Survey Research (0, 1, 2, 3)
Incident Decision (Enter response i, not cost)
VERIFICATION TOTAL 2 ------->

$
$
$
$

---1.,000
---1.,000
-2,000
-2,000
12 %
15 %
21. 6(added 1.6% to benefits)

o
3

...!

71. 6 (c)

Add items 1-16 and place sum in Verification Total #2 (exclude pre-printed OOO's). You may mix dollars,
percentage, & units; it is for computer input verification only.

(a) To tenninate employees, place a minus sign in front of the number in the "Hire from Outside" column.
(b) The program will automatically charge for items # 7 through # 13.
(c) Verification Totals are not the cost, only a computer entry check.

16

"---'

*** SURVEY RESEARCH STUDIES ***

Your Finn's Wages excluding Fringes (LevelS-I):
18000 14000 12000 10000 8000
Industry Avg Wage excluding Fringes (LevelS-I):
18000 14000 12000 10000 8000
Local Comparable Wage excluding Fringes:
19000 16000 14000 11400 9000
Avg Management Training $ 4,000
Avg Safety Budget
$5,000
Avg Quality Budget
$ 5,000
Number of Co's with Emp Part Program: 0
Avg Quality Index, Morale, Grievances, and Absenteeism:
50, 50, 31, 498

*** Survey Studies, News Messages to Your Firm and Incident x Response ***
Use Incident A in Quarter 1. Total Payroll this quarter (excluding fringes) $5,910,000
Unit Labor Cost $59.10
(Your Incident results are also printed here)
*** INDUSTRY NEWS MESSAGES ***
Production Forecast Next 4 Quarters: 100,000 105,000 110,000 112,000

EXPEDITED QUARTER 1 DECISIONS

The following instructions are given if you have only a limited amount of time to make the fIrst
quarter decisions and you want to expedite the decision process. Place a Decision Form (from the
back of the manual) next to the Quarter 0 Starting Point Report (page 14). Enter the numbers from
"Estimated Vacancies Next Qtr" (top right column) on the Decision form "Hire from Outside"
column (0,0,4,5,50). This will replace all workers who are leaving your organization with outside
hires; there will be no internal promotions - you can do that next quarter.
The hiring cost will total $168,000. You will have $46,500 ($350,000 - $168,000) to spend on the
remaining items (#1-#11) on the decision form. However, if you have not had time as a team to set
goals you should under spend your budget on items # 1-11 and wait until next quarter to implement
your strategy. You will be delaying wage increases and a fringe benefIt increase until you have time
next quarter to carefully calculate the costs. An expedited decision is not the preferred method of
starting the simulation but at least it will get things going.

The most common error made on the decision form is the team's failure to
hire the correct number of employees to replace resignations. Another
common error is failure to replace the employees who were promoted.

15

HUMAN RESOURCES DECISION FORM - Industry_ Quarter _

'-----'-

Wage Increase
per person
I!er Quarter

FYI:
Cost
to Hire

5 ----->

$15000

4 ----->

$12000

3 ----->

$10000

2 ----->

$ 7000

1 ----->

$ 2000

Hire from
Outside {a}

Level
HIRING

AND

WAGE INCREASE

Promote
from
Within

Company # __

VERIFICATION TOTAL #1-->

(Add all 14 items above)

1.

Training Budget for Promotions

(0-$80,000)

L...L...J,

000

2.

Training Budget Mqmt & Employee Training (0-$80,000)

L...L...J,

000

3.

Safety & Accident Prevention Program

(0-$80,000)

L...L...J,

000

4.

Establish and Maintain Quality Program

(0-$80,000)

L...L...J,

000

5.

Targe.t % of Females to Hire

(% of Total Hired)

L...L...J

6.

Target % of

to Hire (% of Total Hired)

L...L...J

7.

Fringe Benefits % (Examples: 20.0, 23.2, 26.7 max 35)

L...L...J

LJ

8.

Employee Participation Program ($12,000) O=No l=Yes

9.

Grievance Procedure ($6,000)

O=No l=Yes

10.

Orientation Program ($3,000)

O=No l=Yes

11.

HR Information System ($11,000)

O=No l=Yes

12.

Performance Appraisal System ($5,000)

O=No l=Yes

13.

Affirmative Action Program ($7,000)

O=No l=Yes

14.

Special Programs

15.

Survey Research in OOOs ($0, 1, 2, 3)

1-6.

Incident this Qtr is

~norities

L...L...J

(Enter in OOOs if instructed to)

Max Va1.ue is

VERIFICATION TOTAL

LJ

Our Decision>

12 ------->

II

LJ

Add items 1-16 and place sum in Verification Total #2(exclude preprinted ODD's). You
may mix dollars, percentage, & units; it is for computer entry verification only. To
terminate employees, place a minus sign in front of the number to terminate in the
"Hire from Outside" column.

Members of the ,t eam present for th,i s ciecisionmeeting: